| India's decision allowing banks to fund acquisitions can potentially hurt private credit funds as it would squeeze returns in one of their most lucrative businesses, Moody's Ratings said. "While the new rules may benefit borrowers by lowering costs for financing and increasing its availability, they could compress yields and reduce deal flows for private credit providers for acquisition financing," the credit assessor said in a report. Acquisition funding has traditionally been a lucrative opportunity for private credit investors through so-called "special situations" transactions, where funds provide flexible, bespoke financing at a premium over bank loans, particularly to relatively weaker companies. They will now face competition as local banks step in. ALSO READ: From Global Stress To Structural Opportunity: Why India's Private Credit Market Entering Its Moment The Reserve Bank of India recently allowed local lenders to finance as much as 75% of the transaction value in corporate takeovers, a move that is expected to boost the country's $40-billion-plus deal market. The country's largest lender, State Bank of India, has signed an agreement with Mitsubishi UFJ Financial Group Inc. to jointly pursue M&A deals. SBI is expected to join a consortium of global lenders backing Sun Pharmaceutical Industries Ltd.'s proposed $12 billion overseas acquisition. The nation's No. 2 state-owned lender, Bank of Baroda, has also partnered with Japan's Mizuho Bank Ltd. to jointly fund mergers and acquisitions. India's private credit sector has doubled in size over the past five years to about $25 billion in assets under management at the end of 2025, while annual transaction volumes have surpassed $11 billion, according to Moody's. Even so, it is a fraction compared to the US market, which manages more than $1 trillion in assets. Moody's expects the market to continue expanding in the country, supported by strong financing demand from infrastructure, real estate and founder-led refinancing transactions. Real estate accounts for about a 40% share by value in India, followed by infrastructure and utilities, the ratings firm said. Global turmoil has not dampened the sector in India. However, investors are expected to face higher risks. "These include increasing - and sometimes hidden - leverage, opacity in structures and valuations, and potential liquidity shortages," Moody's said. ALSO READ: US-Iran Indirect Talks In Doha Focus On Frozen Funds, Hormuz, Crisis Communication And De-Escalation The ratings firm cited Shapoorji Pallonji Group's 286 billion-rupee ($3 billion) deal and Mumbai International Airport Ltd.'s $750 million refinancing with Apollo-led global investors among large private transactions in 2025. |
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
